CP Rail expects DM&E to earn more than forecast

VANCOUVER, British Columbia, Oct 30 (Reuters) - Canadian Pacific Railway (CP.TO) took control of the Dakota, Minnesota & Eastern Railroad on Thursday, saying the new line will add more to earnings than forecast when the deal was announced.

Canadian Pacific had projected the U.S. regional carrier would add 15 to 17 Canadian cents a share to its earnings this year, but it now says the amount will be higher based on DM&E's performance so far this year.

The change does not affect CP's overall earnings forecast for 2008, a spokesman said.

Canadian Pacific has been operating the South Dakota-headquartered DM&E and its Iowa, Chicago & Eastern subsidiary on a hands-off basis since it purchased them last year for $1.48 billion.

CP was allowed to take operational control after the U.S. Surface Transportation Board gave its blessing to the deal last month.

Canadian Pacific has not decided if it will pursue DM&E's plan to expand into Wyoming's Powder River Basin coal fields, and does not have a timetable for making that decision, a spokesman said.

The coal plan has run into opposition from some communities along the DM&E line, and U.S. regulators have said CP cannot start hauling coal from the Wyoming mines until it receives environmental approval.

The closely-held DM&E was the largest Class II regional railroad in the United States, operating on about 2,500 miles of track in eight Midwestern states with some 1,100 employees and 150 locomotives.

The DM&E and IC&E were created from track spun off by larger railways in the 1980s and 1990s. (Reporting Allan Dowd, Editing by Peter Galloway)